If development of innovative new drugs is lagging, it's largely because drug companies choose to spend their money elsewhere, two researchers charged.

If development of innovative new drugs is lagging, it's largely because the pharmaceutical industry would rather spend its money on protecting the franchises built around existing products, two researchers charged.

The resources that drug companies devote to discovering new products that fill unmet needs pale in comparison to their spending on marketing, and on research aimed at tweaking their current drugs, argued Donald W. Light, PhD, of the University of Medicine and Dentistry of New Jersey in Cherry Hill, N.J., and Joel R. Lexchin, MD, of York University in Toronto.

"This is the real innovation crisis: pharmaceutical research and development turns out mostly minor variations on existing drugs, and most new drugs are not superior on clinical measures," they wrote online in BMJ.

Drug firms have long argued that the cost of bringing new drugs to market has become fantastically expensive, now averaging an estimated $1.3 billion per new chemical entity (NCE) approved.

Also, many observers have worried about an apparent decline in the rate of NCE approvals since the mid-1990s, leading to concerns that pharmaceutical progress may soon grind to a halt.

Light and Lexchin contended, however, that these arguments are mostly bogus, founded on phony statistics.

"Both claims serve to justify greater government support and protections from generic competition, such as longer data exclusivity and more taxpayer subsidies," as well as patent regulations favoring Big Pharma, they wrote.

They calculated that, far from spending $1.3 billion to develop each successful NCE, drug companies often shell out less than $100 million.

Of the purported $1.3 billion average, "half... comes from estimating how much profit would have been made if the money had been invested in an index fund of pharmaceutical companies that increased in value 11% a year, compounded over 15 years," they wrote, citing the research center at Tufts University in Boston that produced the estimate (J Health Econ 2003;22:151-85).

Half of the remainder is actually paid by taxpayers in the form of deductions and credits, Light and Lexchin added, such that companies' actual average expenditure is only about $330 million.

And, these estimates were based on the most expensive 20% of new drugs, they pointed out. When the calculation was done on all NCEs, the average actual expenditure came down to $90 million.

As for the decline in NCE approvals, it too is exaggerated, they argued. There has only been a decline with respect to the mid-1990s, when there was a large spike in approvals, connected to the introduction of FDA "user fees" that allowed the agency to clear a backlog of new drug applications.

Recent annual rates of 15 to 25 NCE approvals are consistent with averages from 1955 into the early 1990s, Light and Lexchin indicated.

Nor has the percentage of approvals involving genuine medical advances -- as opposed to "me-too" products -- declined much. They cited a 1991 analysis that found only 34% of drugs approved from 1974 to 1989 represented "important therapeutic gains."

The real enemy of innovation, they suggested, is the industry's devotion to marketing and defense of existing blockbuster products.

According to a published estimate by Lexchin and a different co-author, pharmaceutical companies spend only 1.3% of revenues on discovering NCEs versus 25% on promotion (PLoS Med 2008; 5:e1)

"This hidden business model for pharmaceutical research, sales, and profits has long depended less on the breakthrough research that executives emphasize than on rational actors exploiting ever broader and longer patents and other government protections against normal free market competition," Light and Lexchin wrote in BMJ.

They argued that regulatory agencies should dramatically stiffen requirement for new drug approvals.

"The low bars of being better than placebo, using surrogate endpoints instead of hard clinical outcomes, or being non-inferior to a comparator, allow approval of medicines that may even be less effective or less safe than existing ones," they wrote.

More provocatively, they recommended that companies no longer be rewarded for innovation by being allowed to charge high prices for new products.

Instead, Light and Lexchin backed a proposal by Sen. Bernard Sanders (I-Vt.) to give large taxpayer-funded cash prizes to companies that deliver real improvements in healthcare, but allowing generic competition to begin immediately in order to keep costs to patients and payers relatively low.

Under such a system, they argued, "innovators are rewarded quickly to innovate again," while countries pay billions less in healthcare costs and patients' health and quality of life improve.

Light reported no relevant financial interests. Lexchin has advised the Canadian government in defending a lawsuit challenging its ban on direct-to-consumer drug advertising and has served as an expert witness on behalf of a plaintiff in a product liability lawsuit against Allergan.

MedPageToday is a trusted and reliable source for clinical and policy coverage that directly affects the lives and practices of health care professionals.

Physicians and other healthcare professionals may also receive Continuing Medical Education (CME) and Continuing Education (CE) credits at no cost for participating in MedPage Today-hosted educational activities.